UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| (Mark One) | ||
| [X] | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2002 or | |
| [ ] | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . |
Commission file number 0-16533
ProAssurance Corporation
| Delaware (State or other jurisdiction of incorporation of organization) |
63-1261433 (IRS Employer Identification ID No.) |
|
| 100 Brookwood Place, Birmingham, AL (Address of principal executive offices) |
35209 (Zip Code) |
(205) 877-4400
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ].
As of November 12, 2002 there were 28,501,482 shares of the registrant’s common stock outstanding.
Page 1 of 36
Table of Contents
Part I — Financial Information |
||||||
Item l. Condensed Consolidated Financial Statements (Unaudited)
of ProAssurance Corporation and Subsidiaries |
||||||
Condensed Consolidated Balance Sheets |
3 | |||||
Condensed Consolidated Statements of Changes in Capital |
4 | |||||
Condensed Consolidated Statements of Income |
5 | |||||
Condensed Consolidated Statements of Comprehensive Income |
6 | |||||
Condensed Consolidated Statements of Cash Flows |
7 | |||||
Notes to Condensed Consolidated Financial Statements |
8 | |||||
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
17 | |||||
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
32 | |||||
Item 4. Controls and Procedures |
33 | |||||
Part II — Other Information |
||||||
Item 1. Legal Proceedings |
34 | |||||
Item 6. Exhibits and Reports on Form 8-K |
34 | |||||
Signatures |
34 | |||||
Certifications |
35 | |||||
ProAssurance Corporation and Subsidiaries
(formerly Medical Assurance, Inc.)
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
| September 30 | December 31 | |||||||||
| 2002 | 2001 | |||||||||
Assets |
||||||||||
Investments: |
||||||||||
Fixed maturities available for sale, at
fair value |
$ | 1,456,369 | $ | 1,270,285 | ||||||
Equity securities available for sale, at
fair value |
100,832 | 97,044 | ||||||||
Real estate, net |
17,719 | 17,936 | ||||||||
Short-term investments |
98,931 | 136,014 | ||||||||
Total investments |
1,673,851 | 1,521,279 | ||||||||
Cash and cash equivalents |
92,088 | 53,163 | ||||||||
Premiums receivable |
88,336 | 77,766 | ||||||||
Receivable from reinsurers on unpaid losses
and loss
adjustment expenses |
409,345 | 374,056 | ||||||||
Prepaid reinsurance premiums |
26,494 | 20,265 | ||||||||
Deferred taxes |
70,937 | 90,565 | ||||||||
Other assets |
89,147 | 101,231 | ||||||||
| $ | 2,450,198 | $ | 2,238,325 | |||||||
Liabilities and Stockholders’ Equity |
||||||||||
Liabilities: |
||||||||||
Policy liabilities and accruals: |
||||||||||
Reserve for losses and loss adjustment
expenses |
$ | 1,548,808 | $ | 1,442,341 | ||||||
Unearned premiums |
234,138 | 188,630 | ||||||||
Reinsurance premiums payable |
68,531 | 48,704 | ||||||||
Total policy liabilities |
1,851,477 | 1,679,675 | ||||||||
Other liabilities |
46,074 | 40,431 | ||||||||
Long-term debt |
75,000 | 82,500 | ||||||||
Total liabilities |
1,972,551 | 1,802,606 | ||||||||
Minority interest |
25,494 | 22,488 | ||||||||
Commitments and contingencies |
— | — | ||||||||
Stockholders’ Equity: |
||||||||||
Common stock, par value $0.01 per share
100,000,000 shares authorized;
25,973,247 and 25,911,234
shares issued, respectively |
260 | 259 | ||||||||
Additional paid-in capital |
262,026 | 260,788 | ||||||||
Accumulated other comprehensive gain, net of
deferred tax expense of $22,575 and
$2,208, respectively |
40,984 | 3,533 | ||||||||
Retained earnings |
148,939 | 148,707 | ||||||||
| 452,209 | 413,287 | |||||||||
Less treasury stock, at cost, 121,765
shares |
(56 | ) | (56 | ) | ||||||
Total stockholders’ equity |
452,153 | 413,231 | ||||||||
| $ | 2,450,198 | $ | 2,238,325 | |||||||
See accompanying notes.
3
ProAssurance Corporation and Subsidiaries
(formerly Medical Assurance, Inc.)
Condensed Consolidated Statements of Changes in Capital (Unaudited)
(in thousands)
| Accumulated | ||||||||||||||||
| Other | Other | |||||||||||||||
| Comprehensive | Retained | Capital | ||||||||||||||
| Total | Income (Loss) | Earnings | Accounts | |||||||||||||
Balance at December 31, 2001 |
$ | 413,231 | $ | 3,533 | $ | 148,707 | $ | 260,991 | ||||||||
Net income |
232 | — | 232 | — | ||||||||||||
Change in fair value of securities
available for sale, net of deferred taxes
and minority interest |
37,451 | 37,451 | — | — | ||||||||||||
Change in minority interest |
254 | — | — | 254 | ||||||||||||
Common stock issued for compensation |
974 | — | — | 974 | ||||||||||||
Stock options exercised |
11 | — | — | 11 | ||||||||||||
Balance at September 30, 2002 |
$ | 452,153 | $ | 40,984 | $ | 148,939 | $ | 262,230 | ||||||||
| Accumulated | |||||||||||||||||
| Other | Other | ||||||||||||||||
| Comprehensive | Retained | Capital | |||||||||||||||
| Total | Income (Loss) | Earnings | Accounts | ||||||||||||||
Balance at December 31, 2000 |
$ | 345,167 | $ | (854 | ) | $ | 136,257 | $ | 209,764 | ||||||||
Net income |
8,196 | — | 8,196 | — | |||||||||||||
Change in fair value of securities
available for sale, net of deferred taxes |
16,533 | 16,533 | — | — | |||||||||||||
Common stock issued for compensation |
19 | — | — | 19 | |||||||||||||
Stock options exercised |
164 | — | — | 164 | |||||||||||||
Equity issued in consolidation: |
|||||||||||||||||
Common stock issued to Professionals
Group shareholders |
49,495 | — | — | 49,495 | |||||||||||||
Fair value of options assumed |
2,952 | — | — | 2,952 | |||||||||||||
Purchase of treasury stock |
(1,324 | ) | — | — | (1,324 | ) | |||||||||||
Balance at September 30, 2001 |
$ | 421,202 | $ | 15,679 | $ | 144,453 | $ | 261,070 | |||||||||
See accompanying notes.
4
ProAssurance Corporation and Subsidiaries
(formerly Medical Assurance, Inc.)
Condensed Consolidated Statements of Income (Unaudited)
(in thousands, except share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30 | September 30 | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Revenues: |
||||||||||||||||||
Direct and assumed
premiums written |
$ | 160,875 | $ | 132,177 | $ | 465,063 | $ | 262,605 | ||||||||||
Net premiums written |
$ | 130,653 | $ | 111,730 | $ | 386,306 | $ | 206,842 | ||||||||||
Premiums earned |
$ | 151,023 | $ | 127,033 | $ | 419,555 | $ | 250,178 | ||||||||||
Premiums ceded |
29,076 | 21,541 | 73,525 | 48,464 | ||||||||||||||
Net premiums earned |
121,947 | 105,492 | 346,030 | 201,714 | ||||||||||||||
Net investment income |
19,819 | 20,226 | 58,773 | 40,164 | ||||||||||||||
Net realized investment gains (losses) |
(13,560 | ) | 858 | (17,338 | ) | 2,052 | ||||||||||||
Other income |
1,660 | 1,629 | 5,284 | 2,675 | ||||||||||||||
Total revenues |
129,866 | 128,205 | 392,749 | 246,605 | ||||||||||||||
Expenses: |
||||||||||||||||||
Losses and loss
adjustment expenses |
139,589 | 124,764 | 397,829 | 240,192 | ||||||||||||||
Reinsurance recoveries |
23,721 | 23,425 | 67,698 | 48,064 | ||||||||||||||
Net losses and loss
adjustment expenses |
115,868 | 101,339 | 330,131 | 192,128 | ||||||||||||||
Underwriting, acquisition
and insurance expenses |
21,380 | 22,812 | 65,862 | 46,058 | ||||||||||||||
Interest expense |
689 | 1,533 | 2,203 | 1,616 | ||||||||||||||
Total expenses |
137,937 | 125,684 | 398,196 | 239,802 | ||||||||||||||
Income (loss) before income taxes,
minority interest and cumulative effect
of accounting change |
(8,071 | ) | 2,521 | (5,447 | ) | 6,803 | ||||||||||||
Provision for income taxes: |
||||||||||||||||||
Current expense (benefit) |
(1,257 | ) | 1,065 | 378 | (320 | ) | ||||||||||||
Deferred expense (benefit) |
(3,200 | ) | (2,291 | ) | (6,701 | ) | (1,884 | ) | ||||||||||
| (4,457 | ) | (1,226 | ) | (6,323 | ) | (2,204 | ) | |||||||||||
Income (loss) before minority interest and
cumulative effect of accounting change |
(3,614 | ) | 3,747 | 876 | 9,007 | |||||||||||||
Minority interest |
910 | 811 | 2,338 | 811 | ||||||||||||||
Income (loss) before cumulative effect
of accounting change |
(4,524 | ) | 2,936 | (1,462 | ) | 8,196 | ||||||||||||
Cumulative effect of accounting
change, net of tax |
— | — | 1,694 | — | ||||||||||||||
Net income (loss) |
$ | (4,524 | ) | $ | 2,936 | $ | 232 | $ | 8,196 | |||||||||
Earnings per share (basic and diluted): |
||||||||||||||||||
Income (loss) before cumulative
effect of accounting change |
$ | (0.18 | ) | $ | 0.11 | $ | (0.06 | ) | $ | 0.35 | ||||||||
Cumulative effect of accounting
change, net of tax |
— | — | 0.07 | — | ||||||||||||||
Net income (loss) |
$ | (0.18 | ) | $ | 0.11 | $ | 0.01 | $ | 0.35 | |||||||||
Weighted average number
of common shares outstanding: |
||||||||||||||||||
Basic |
25,851 | 25,791 | 25,845 | 23,745 | ||||||||||||||
Diluted |
25,858 | 25,800 | 25,862 | 23,749 | ||||||||||||||
See accompanying footnotes.
5
ProAssurance Corporation and Subsidiaries
(formerly Medical Assurance, Inc.)
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30 | September 30 | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Comprehensive income: |
|||||||||||||||||
Net income (loss) |
$ | (4,524 | ) | $ | 2,936 | $ | 232 | $ | 8,196 | ||||||||
Change in fair value of securities
available for sale, net of
deferred taxes
and minority interest |
20,634 | 15,843 | 26,181 | 17,867 | |||||||||||||
Reclassification adjustment for
realized (gains) losses included in
income, net of deferred taxes |
8,814 | (558 | ) | 11,270 | (1,334 | ) | |||||||||||
Comprehensive income |
$ | 24,924 | $ | 18,221 | $ | 37,683 | $ | 24,729 | |||||||||
See accompanying notes.
6
Table of Contents